Are you suffering from a poor credit score?
If you don’t have good credit or want to improve your credit score to get better deals on loans, there are several options available to you to make that happen.
Remember, your credit score is not set in stone. Anyone can work their way to becoming a responsible borrower in the eyes of creditors. What can you do to make that happen? Follow these tips to learn how to skyrocket your credit score:
1. Start By Paying Down Your Credit Card Balances
The best way to improve your credit is to use a reasonable amount of your available credit card balances. Ideally, you want to use less than 30 percent of your available credit overall. And less than 30 to 33 percent of the balance on any given card.
While you may get more leeway if you have a longer credit history, paying down your balances is good no matter who you are as it reduces interest paid each month.
When deciding which balances to pay down, most people choose to either pay down the balances with the highest interest rate or the cards with the smallest balance.
Paying off a small balance or two may help you gain the confidence necessary to start tackling your larger ones. However, you generally save more in interest and improve your credit score faster by tackling balances with higher interest rates first.
2. Cancel Your Newest Accounts If Possible
One tactic that you may want to consider is paying down your newest account balances and closing them.
This may make it easier to improve your credit age, which in turn, will help your credit score immensely with little to no effort on your part.
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Your credit age is determined by averaging your oldest account with your newest one. For instance, if you had a card open for 10 years and opened a new one today, your average age would be roughly five years.
By closing your newest account, your credit age will increase by months or even years depending on your credit use.
3. Take Out a Loan to Create a Positive Credit History
The third secret to increasing your credit score fast is a little counter-intuitive. You may think that paying for everything with cash is the best way to go. While you never want to spend more than you have to on interest and other fees, not having a credit history could be just as bad as having a low credit score.
Therefore, it may be in your best interest to put a purchase on your credit card or take out an auto loan that you can pay back as soon as possible.
While you may not need your credit now, you never know when an accident could deplete your savings. In some cases, you could actually get a discount for buying a product on a credit card. Which means that having good credit could lead to a direct financial benefit.
If possible, take out both revolving and installment loans as that increases your debt mix. That is something that le￼nders like to see as it shows you can handle a variety of debt.
One effective strategy is to take out a secure personal loan from a local credit union. And it doesn’t have to be much, even a $300 secure loan set to pay itself off in 12 months will do wonders for your credit score.
Just tell the personal banker that you’re taking the loan for credit building purposes, and ask them to set up all the payments in advance.
This will only cost you a few dollars a year in interest. That’s it! (Almost) hands-free credit building.
4. Settle Any Past Due Debts
Debt holds you down like a large anchor.
Whenever possible, work toward paying down any debt that is past due by more than 30 days.
If you let the debt linger, you could be faced with a lawsuit and a judgment on your credit report. Even if you pay off the debt after it goes to collections or after the judgment is made against you, it will stay on your credit report for up to seven years.
Therefore, it is always in your best interest to take care of any payments that you missed as it will improve your credit and put a stop to creditor actions against you.
5. File for Bankruptcy
While this may be surprising to many, filing for bankruptcy can actually help you increase your credit score. This is because you will finally have old debts wiped away or marked as current depending on how you decide to handle your case. As an added benefit, you will now have more disposable income, which means you have a lower debt-to-income ratio.
That directly impacts your credit score while making it possible to get new loans relatively quickly. While you won’t be able to buy a home or get a car at optimal interest rates for a couple of years or more, you are laying the foundation for a better financial and credit future.
Chapter 7 cases will stay on your credit report for 10 years, but the impact of filing tends to fade after a couple of years assuming you learned from your mistakes. Like other items on your credit report, a Chapter 13 bankruptcy will go away after seven years.
6. Check Your Credit Report For Errors
Aside from closing unused credit accounts, this may be the easiest way to improve your credit score.
If there are any errors in what creditors report to the credit agencies, you should have those fixed. For instance, you may have a past due payment on your credit report that you made on time. That could add another 100 points to your score once it is fixed.
Checking your credit report can also alert you to identity theft or items being reported on your report that don’t belong to you. It is more common than you may think for another person’s debt to be reported as you own. Especially if you have a relatively common name like John Smith or Bill Jones.
If you see something reported in error or someone is trying to collect on a debt, ask that the creditor verify that debt first. If it cannot be verified, you do not owe any money and the credit bureaus may be compelled to remove that information through legal action.
Here’s how to check your credit report for free.
7. Refinance Current Loans Whenever Possible
The last of our credit score secrets is a bit advanced. The type of loans that you have could play a role in determining your credit score just as much as your credit balances and paying on time. Generally, revolving credit accounts are seen as more detrimental to your credit score. That’s because revolving debt can be used over and over again.
Just because you are using it wisely today doesn’t guarantee that you will tomorrow. However, installment loans last for a set period of time before you are no longer liable for making payments. Therefore, converting credit card debt to a personal loan or a home equity loan could increase your credit score and even lower your payments.
Your credit score is one of the most important numbers in your life. It can be the difference between buying a home or renting an apartment or the difference between getting great rates on insurance versus buying a discount policy. In some cases, it could even determine if you get a job. Therefore, it is always a good idea to monitor your credit carefully and start taking steps to today to improve it if necessary.
Now that you know how to skyrocket your credit score, it’s time to go out there and take some action! Did we forget something? Can you think of any more useful credit score tips? Let us know.